The tech scene in Pakistan might seem like it is currently at a standstill but don’t be fooled. While investment may be dwindling, efforts of tech-driven and innovation oriented individuals to continue disrupting the technology landscape have not stopped. If you don’t believe us, just sit at a chai dhaba for a few hours and you will most probably overhear someone discussing what sounds a lot like a promising startup idea at a nearby table.
However, the tech landscape has definitely changed, and even taken quite a hit in the last two years. But with trying times comes innovation. This is perhaps why even telcos are reconsidering their role in the larger scheme of things, thinking beyond mobile operation services and network provision.
The most glaring example of this would be the rising interest of telecom operators in the startup space. And this is not a novel occurrence. A decade and a half ago, most telcos in the country were hyper-focused on tapping into digital financing services, the fruits of which are evident in Telenor’s EasyPaisa and Jazz’s Jazzcash. Now, the time to diversify has arrived once again, and the cool new thing for telcos to get into are accelerators. With the same two companies that were able to crack online digital wallets are the ones with accelerators. Telenor launched its accelerator Velocity in 2016. Soon after, Jazz followed suit by launching xlr8 in 2017.
But why are these telcos interested in accelerating startups?
Profit explores.
Private sector players in a high risk ecosystem
One thing is for sure; as organisations grow, they have to tap into newer products and services. And according to Areej Khan, chief people officer (CPO) at Telenor, “The future is definitely digital. The customer need is evolving and with them the role of telco operators is also evolving.”
She believes that the startup ecosystem would help private sector players like Telenor to broaden their horizon, by diversifying their product and service offerings. “You know, they have what we need and we have what they need. It just makes sense.”
Let’s start from the beginning.
Telenor Velocity was incorporated almost a decade ago, in 2016. This was a time when the startup ecosystem was just beginning to take hold in the country. “We witnessed many startups with great ideas come forth, who were getting initial funding but we immediately saw that there was a gap,” said Khan.
This gap existed between the initial seed funding stage and scaling. It isn’t a particularly new or innovative idea, but it is an interesting direction for a telco to take. “The needs of that particular stage were being met for the startups, but they were unable to really scale when the time required. And us as a technology organisation, we felt that we could perhaps play a better or a bigger role once the ideas of the startups had been validated. We wanted to come in and provide technology as an enablement tool for these startups,” Khan explained.
Khan told Profit that the idea was to provide support to the growth stage startups and help them scale their ideas through the infrastructure that Telenor had to offer. “The role that we play currently is quite aligned with our business strategy as well. We work with startups that fall in the verticals that, currently, Telenor Pakistan is actively providing products and services under. So, we work with startups in the areas of agriculture, education, Internet, gaming content and even inclusion.”
Khan revealed that Velocity aids the startups in its portfolio through letting these startups access Telenor’s customer base, while also providing the right kind of mentorship.
Some notable startups from Velocity’s portfolio of 42 graduated startups include Sehat Kahani, Digi Khata, OlaDoc and Deaftawk.
But why would profit-driven companies want to invest in such a high-risk ecosystem? It is common knowledge that venture capital is inherently risky, and tech startups stand on shaky grounds.
We asked Khan what motivated Telenor to venture into this sector, and what potential they see in it.
She highlighted that with funding and capital being an issue globally, venture investments are the first to take a hit due to their risky nature.”However, I actually believe that economic downturn actually is the time that often sparks innovation. And organisations like us [Telenor] thrive on innovation.”
She reiterated that entrepreneurs address emerging challenges arising from the economic situations such as the current one, by creating new problem statements that require innovative solutions. “As an investor, this period is ideal for investing in startups to capitalise on these groundbreaking solutions. Unique problems foster innovative approaches, and with the right investment timing, these startups have the potential to disrupt industries in the long run.”
“In my humble opinion, the present moment is particularly opportune for such investments. This strategic approach enables organisations to tap into and benefit from cutting-edge solutions, which is the primary reason why entities like ours are invested in aiding and mentoring startups under the current economic conditions,” Khan concluded.
She also added that no other business venture offers the sort of long term growth potential that a startup would. “Startups don’t actually operate on a very short term horizon. Their success isn’t necessarily tied down to the short term economic fluctuations that we’re seeing. So, investing our time and expertise in a good startup right now means positioning it for the long term growth that will come about once the economy eventually rebounds. It just makes logical business sense to us.”
When inquired what incentive Telenor Velocity has for accelerating startups, Profit learnt that Velocity does not take equity in the companies it trains. Khan highlighted the nature of the transaction by sharing, “We work on multiple models with them, one of them being revenue-share.”
But how is Velocity financed?
According to Khan, Telenor Velocity is part of the company’s Corporate Innovation function which has certain budgets allocated for its activities annually.
But what can accelerators do when there is no money?
One common question that we realise people have lately been asking is of the utility of accelerating startups when there is little to no international VC funding available right now. This coupled with the fact that most venture capital firms in Pakistan have run out of money and are now struggling to raise another fund paints quite a bleak picture.
It is no secret that international VCs are sceptical of investing in Pakistan and there is also a general decline in overall funding throughout the landscape. So, what is the purpose of an accelerator in this current economy when there is such limited money to flow around anyway? More importantly, how can Velocity even bridge this gap when there is a serious lack of capital?
“I think that startups are an important part of what I believe is called the opportunity entrepreneurship and these are entrepreneurs or individuals that recognize the market gaps or they understand the unmet needs of the customer or have an attack on the emerging trends that exist in the market,” Khan remarked.
She continued to elaborate, “Then they are the ones that put efforts behind these problem statements and come up with innovative products and services or business models. Particularly during economic downturns, organisations should support startups through funding or scaling platforms. Incubators play a crucial role by preparing startups for investment, while accelerators like Velocity offer mentorship, by guiding startups in networking, and customer acquisition strategies, ensuring readiness for future funding opportunities. In the long run, investing in startups fosters job creation and economic growth.” Khan insisted that even when there is a lack of funding, Velocity prepares startups, it is willing to bet on, for securing capital when it is available in the future, or build a product so strong that it attracts foreign and local investors even during a funding crunch like the present one.
Sarah O. Munir, chief executive officer (CEO) of Invest2Innovate, speaking on the utility and need for accelerators, said, ”The purpose of a good outcome-oriented accelerator program is to identify high potential founders and businesses and help them speed up their growth journey by providing them with targeted training, access to business development resources, mentors and experts that can help escalate their growth journey. While getting to funding is one outcome, there are many other benefits that an accelerator provides such as helping businesses with product, market testing and growth hacking tactics.”
When asked how the role of accelerators have changed, in the current economic downturn, Munir explained, “In an environment like the current one, where funding is dry on all fronts, good accelerator programs become even more relevant because the time and space to make mistakes and burn unnecessary cash is limited.”
She continued, “Founders need to build strong businesses with their fundamentals in place, the problem clearly identified and the solution correctly packaged for the right customer in the most optimised way. That’s where accelerators come in and help them. Good accelerators don’t provide a standard run-of-the-mill standardised curriculum. Instead, they focus on providing specific bespoke coaching that is specific to the founder’s needs in their growth journey.”
Profit was curious to know what sets Telenor Velocity apart from other accelerators. Is there anything that Velocity does differently?
According to Khan, Telenor was the first Telecom accelerator to open up their APIs to startups and showed willingness as a private sector player to work with startups. She believes that this made Telenor’s accelerator stand out in the crowd, showing their commitment to bolstering the tech ecosystem.
She relayed, “We become a local telecom partner for their growth. We integrate startup products and showcase them on our digital assets in a business model that proves beneficial for our customers, the startup and Telenor. In true essence, we become a partner more than just an accelerator and that has been our USP.”
Why not a VC fund?
Let’s be honest, accelerators do not have the best reputation in Pakistan due to one main reason– the startups that have come out of incubators and accelerators have hardly been the most popular and celebrated ones in the country.
Some people would go as far as to say that this model of incubating and accelerating startups has largely failed in Pakistan. The common perception goes: incubated startups have not been the most heavily funded, compared to ones that organically seek investment on their own.
So, why did Telenor not set up a venture capital fund instead?
“We were actually from the very beginning, very clear as to the role that we wanted to play,” said Khan.
Telenor did not set up Velocity because it wanted in on the startup scene. Khan says that as a tech company, Telenor wanted to diversify, but also tap into areas of its strength nonetheless.
“We’re a digital company. That is our strength, right? And we’re not a VC and we’re not angel investors.”
She continued, “We provide services to our customers to enhance their digital lifestyle. We’re constantly looking for and seeking products that we can probably add to our value mix.
So, then the question is, why even venture into the startup system?”
Answering her own question, Khan elucidated, “I feel that as a tech company, we can use technology as an enablement tool for the startups that we work with. Because again, an incubator is one that provides support to startups when they’re in the seed stage. An accelerator is a unit that steps in to help a startup to scale. And in order to scale, they don’t only need funding, they need platforms, they need access to a customer base. And Telenor provides them with access to 44 million of our customer base, access to our subscribers on my Telenor app, our IoT cloud. And then we have a huge retailer base, since our distribution network is huge. So, we give them access to that particular distribution network as well.”
She highlighted that the most important role Velocity plays as an accelerator, that it would not have been able to play as an investor related to certain financial aspects, such as API integrations, or support in easypaisa integration. “These are the things we have that startups really need. Moreover, we are constantly looking for products and services that are closely aligned with our strategy. So, when we support them in scaling, there is a potential in the long run that they can be absorbed within our own value chain and provide the services that our customers seek from them. It’s a win-win in my opinion.”
Debunking the myth that accelerated startups, despite better training resources end up lacking when it comes to being generously funded, Khan shared, “I won’t deny that there has been a decrease in funding this last year, but we have quite a few examples of startups that we’ve worked with, which ended up doing quite well. Our alumni startup Sehat Kahani, secured approximately $2.7 million in series A funding from both international and local investors last year. We also have examples like Taleemabad and other EdTech that have received approximately $2.3 million from various funds, including the Malala Fund.”
Khan believes that Pakistan has produced some successful startups that have the potential to become unicorns, and that the current economic downturn shouldn’t deter companies, telcos, the tech industry, and investors alike from investing in this sector.
Khan also shared that Velocity has recently collaborated with the National Incubation Center in Islamabad. She said, “NIC Islamabad assists startups in their initial stages, and we contribute when they reach the growth stage. By partnering, we’re creating a pipeline of startups attractive to investors. Our goal is to help startups gain more customers, which is crucial for scaling their business and that remains our primary objective with this new collaboration.”
After Khan shared the news of Velocity’s partnership with NIC Islamabad, we asked whether government initiatives, such as the previous interim government’s startup fund are useful in aiding the efforts of entities like Velocity?
Khan, agreeing with the assertion, said, “Yes, definitely. First of all, I believe when it comes to fueling the startup ecosystem, the private sector cannot do the job on its own and neither can investors. The government definitely has to play its part. The Pakistan startup fund is actually a great step by the government to provide support and seed funding for early stage startups.”
She used the analogy of a pyramid to explain the role of each entity in ensuring that the ecosystem does not only survive but also remains healthy. “Many startups with great potential don’t make it to the next stage because of poor economic conditions. So, survival in the initial years is of paramount importance. And with this government fund, startups having the right ideas or solving the right problems won’t be forced to discontinue their efforts to build something because of the lack of capital. The fund would also help accelerators, like us, to come up with a larger pool at the middle of the pyramid, which is a stage where we help the startups to scale.”
She shared that Velocity, while not being an investor, offers $10,000 worth of in-kind support to startups for this very reason.
In its eight year journey, Velocity has trained 8 cohorts, done 8 pilot runs and accelerated 42 startups that have gone on to raise $6.8 million worth of collective investment.
